Comment on “India's Economic Reforms: Achievements and Next Steps”

• Published date: 01 January 2019
• Author: Hideki Esho
• Date: 01 January 2019
• DOI: http://doi.org/10.1111/aepr.12240

Comment on “India’s Economic Reforms:

Achievements and Next Steps”

Hideki ESHO†

Hosei University

JEL codes: N00, E01, I31

Accepted: 20 July 2018

Ahluwalia (2018) provides a brief but comprehensive assessment of India’seconomic

reforms that were started in 1991. As is well known, Ahluwalia is one of the leading actors

of the economic reforms in 1991 when he was the Finance Secretary. This paper is especially

interesting because this is written by someone directly involved in the reform process.

Ahluwalia describes the 1991 reforms as “a distinct departure from the incremental

changes attempted earlier”and “a clear shift towards a much more market-oriented econ-

omy”, but at the same time he mentions that the reforms were gradual in nature and they

continue even today under the government led by PrimeMinster Narendra Modi.

There was a big debate about the turning points of the Indian economy. One side

argued that the turning points of the Indian economy should be found in the early

1980s (Rodrick & Subramanian, 2005), while the other side argued it was in 1991

(Ahluwalia, 2002). Although I agree with Ahluwalia’s critique of DeLong and Rodrick–

Subramanian’s admiration of pro-business reform of 1980s as being unsustainable, it is

rather better to think that the “pro-business”reforms of the 1980s and the “pro-market”

reforms of 1991 are a continuous sequence-seeking economic liberalization/deregulation

from a socialistic closed economic system. Although the reforms were incremental or ad

hoc, the liberalization episodes began as early as the 1980s or even much earlier. As

Ahluwalia rightly points out, the economic reforms since 1991 too are gradualist nature,

and differ from the International Monetary Fund-World Bank structural adjustment

program in terms of speed, extent, and sequencing, although the direction is the same.

This is one of the most important reasons why Indian stabilization efforts were out-

standingly successful. In other words, there was a clear ownership among Indian states-

men and they had enough ability to manage economic crisis. Another reason why the

Indian episode of economic reforms since 1991 is successful is that, as Ahluwalia points

out, there is a national consensus on the direction of economic reforms. If we compare

these episodes with those of 1966, when India faced another most serious political and

economic crisis, the differences are clear. In the 1966 crisis, there was neither clear

ownership among statesmen nor a national consensus to pursue economic reforms.

†Correspondence: Hideki Esho, Faculty of Economics, Hosei University, 4342 Aihara, Machida-

shi, Tokyo, Japan. Email: esho@w9.dion.ne.jp

© 2018 Japan Center for Economic Research 63

doi: 10.1111/aepr.12240 Asian Economic Policy Review (2019) 14, 63–64